Telephone expense definition
/Telephone expense is the cost associated with all land lines, fax lines, and cell phones during a usage period. If a cost is incurred in advance, then it is initially recorded as a prepaid expense, and later recognized as telephone expense in the period in which the service is actually used. This cost is usually stored in a separate general ledger account that may be aggregated with other utilities when it is reported on an organization's income statement.
Characteristics of Telephone Expense
The key characteristics of telephone expense are as follows:
Fixed vs. variable cost. Some components of telephone expenses, such as monthly subscription fees, line rentals, or bundled service plans, remain constant regardless of usage. However, some costs may fluctuate based on the number of calls made, international roaming, data consumption, or pay-per-use services.
Recurring expense. Telephone expenses are incurred on a regular basis, typically monthly or annually.
Classification. Telephone expense is often categorized under administrative or office expenses in an organization’s financial records. If a company’s primary operations involve customer service (e.g., call centers), telephone expenses may be considered a direct cost. For general office use, it is treated as an indirect expense.
Allocation options. In larger organizations, telephone expenses may be allocated per department based on usage (e.g., customer service, sales, IT support).
Presentation of Telephone Expense
The telephone expense is usually recorded in an account called Telephone Expense, but there are several other options. The full range of options is as follows:
Telephone expense account. This is the most popular choice, since it clearly identifies the nature of the underling expense. This is a good approach when the telephone expense is substantial.
Utilities expense account. This is a reasonable alternative when the telephone expense is not a large amount, and management does not see a need to break out the expense in order to monitor it more closely.
Miscellaneous expense account. This is a possible choice when the telephone expense is quite low, and is so insignificant that management does not need a break-out of the expense at all.